Is the equities boom back on?

As the New Year approached, I read a report from Saxo Bank. Penned by chief economist Steen Jakobsen, the report gave its usual “outrageous predictions” for the year ahead, but what was most interesting was his comments in the more sober foreword.

Jakobsen warned that the biggest problem on the horizon was what he referred to as complacency.

“I do not remember a similar level of complacency since the year 2000, when everyone I knew quit their job in the hope of making a fortune day trading. One of the things we can learn from history is that we rarely ever take its lessons to heart,” he added.

Four weeks is a long time in business, and as a couple of CEOs have taken pleasure in telling me this week, the only thing that looks complacent is Jakobsen’s predictions. As I write this, the Dubai Financial Market is standing at 1,787 points. That figure is close to a three-year high. Emaar shares are trading at over AED4, representing a 76 percent one year return. They have risen a staggering 17.52 percent in the past month alone. Arabtec shares have soared 17.74 percent in the past month. Union Properties? If you have those, you are sitting on a 21.28 percent increase over the same period. Tabreed’s share price has rocketed by more than 36 percent in four weeks.

This tells us two things: first, fears over the proposed mortgage cap (which is increasingly beginning to look like just that – a proposal) have done nothing to dampen the buoyancy of the Dubai property market. Many times over the past four years, a recovery was wrongly called.

I don’t know anyone who doesn’t believe we are now in a substantial growth phase for property.

Second, the appetite for equities is stronger than ever. Investors are confident (and I am referring primarily to Dubai) that the emirate’s growth plans are realistic and achievable. By all accounts, Dubai’s economy grew by 4.5 percent last year and the upward trend will continue through 2013. The Dubai Statistics Center has completed figures for the first half of last year and they show an incredible 16 percent growth in tourism and 10.4 percent growth in the manufacturing sector. Confidence is back, growth is back.

The question of course is how far and how long can this current trend last? I think the next five weeks at least look strong for stocks. After that, the US will have to close a deal on its debt ceiling, which currently stands at over $16 trilllion. Failure to do so could see the US defaulting on its debt, and many fear that would lead to spectacular falls across global stock markets. For all the underlying strengths of the Dubai economy, whether it can withstand a US debt default remains to be seen.

What is equally interesting right now is the price of commodities. Gold is hovering around the $1,690 per ounce mark, a long way off the $1,921 it reached in 2011. Silver coin prices are stuck at $32, and like gold, have moved little in twelve months. But a US debt default - and a likely fall in equities – could send both gold and silver prices soaring again.

The US has been down to the brink of disaster and back several times in recent years, and I doubt President Obama will not be able to save the day again. One way or the other, the US will, most analysts believe, avoid a default. Not great news for gold and silver investors, but for equities, the ride may only just have started.

Jakobsen was right about one thing: many people did quit their jobs in 2000 in the hope of making a fortune from day trading. And many may do so again. When you consider that companies like Emaar are today worth $7.23bn, a fraction of the $35bn valuation in 2006, you can see the growth potential for stocks.